The fate of the Nord Stream 2 project is doubtful, and it is gradually becoming a litmus test of relations between the US and Germany.
Like in a kaleidoscope
Not so long ago, in late January 2021, the Nord Stream 2 project was moribund. The pipe-laying work had been at a standstill for more than a year, not including a short, few kilometers long section completed in German waters. The continuation of the project was jeopardized by the US sanctions. For this reason, the principal insurer, the Zurich Insurance Group (ZIG), withdrew from it. Earlier, DNV GL, a consortium of insurers, had made the same decision. Nord Stream 2 was also, for the first time, abandoned by a German company – Bilfinger.
On January 19, 2021, the last full day in office of President Donald Trump and his administration, the US decided to impose sanctions. These included the Fortuna vessel and its owner, the KVT-RUS company. The restrictions have been introduced under the Countering America’s Adversaries Through Sanctions Act (CAATSA), which meant that they were more of a warning shot, but – nonetheless – a shot.
However, Russians – who bore the burden of building the pipeline – did not give up. After the ZIG’s withdrawal, the media informed about a company established in Russia, which, within just two days, had obtained the approval of the federal bank to conduct insurance activities. This entity was considered to be the successor to the ZIG. Moreover, Russians were trying to minimize the risk associated with the sanctions imposed on the Fortuna ship. The vessel had several different owners and was passed on from one microenterprise to another. The current owner of the barge (KVT-RUS, the sanctioned company) is also a microenterprise with only one employee.
Germany also offered its assistance. The state authorities of Mecklenburg-Vorpommern announced that they would establish a “pro-climate” organization to protect the Nord Stream 2 project from sanctions. Its founder, the Nord Stream 2 AG, a company owned by Gazprom, could contribute up to 20 million euro for this cause. The trick was based on the assumption that the US would not impose sanctions on an entity owned by the German state government. Such a proposal of the Mecklenburg-Vorpommern region shocked German environmental activists. As a result, they staged widespread protests against the actions of the state government.
The case of Alexei Navalny added fuel to the fire in terms of Nord Stream 2. In 2020, the Russian opposition activist barely survived an assassination attempt (he was poisoned with the Novichok nerve agent, used by the Russian state security services). Upon returning to Russia from a German clinic, where he had been hospitalized, he was arrested and put on trial. Furthermore, Vladimir Putin’s regime was brutally suppressing protests that had sparked in major Russian cities after Navalny’s return to the country. These events provoked a backlash from a number of politicians and media outlets around the world. They also directed attention to the construction of the Nord Stream 2 gas pipeline. The European Parliament called for the project to be abandoned. Additionally, the editorial board of the French newspaper Le Monde has called on Chancellor Angela Merkel to stop the construction of the gas pipeline.
An American proposal
Tensions over Nord Stream 2 were at their peak until early February. Then, the German newspaper Handelsblatt reported that the new American administration had expressed its readiness to lift sanctions against the Nord Stream 2 on condition that Germany adopts a “package of solutions,” responding to US concerns about European security.
Handelsblatt always had fairly reliable information concerning the relations between Germany and the US. It reported, among others, on the US ambassador in Berlin, Richard Grenell, who was warning that German companies involved in Nord Stream 2 might face sanctions. Therefore, it could be assumed that this information is also true. The reports from the people close to the President also seem to confirm them. Even before Biden was sworn in, it seemed that under the leadership of the Democrat, the US would be willing to lift the sanctions if Europe halts the Nord Stream 2 project. However, the condition for that was not the suspension of construction but an unspecified “package of solutions.”
According to German media reports, such a message from the US caused “a relief in Berlin.” However, it did not last long. Already on February 4, the spokesperson of the US Department of State said that Washington “is continuing to monitor the implementation of the Nord Stream 2 gas pipeline project,” and should it be determined that the construction of the pipeline is resumed (according to Russian reports, this was supposed to happen in January, although this information has not been confirmed), then America “[will] make a determination on the applicability of sanctions.”
Flags wave outside of the headquarters of Gazprom. Moscow, Russia, January 21, 2020. According to Gazprom’s plans, the Nord Stream 2 natural gas pipeline from Russia to Germany was supposed to be completed at the beginning of 2021, despite US sanctions against companies involved in pipe-laying activities.
A political weapon
The geopolitical future of Central Europe depends on the decisions of the US administration in this regard. Nord Stream 2 is a project that would profoundly shape this realm in the long-term. It is a political scheme – contrary to what has been repeated like a mantra by the German and Russian authorities that it is a business project.
The construction of the Baltic Sea pipelines is not motivated economically, as evidenced by the fact that the existing onshore transmission infrastructure is currently used only in 70%. Consequently, there is no reason to invest huge resources in new gas pipelines – which would have to be laid on the seabed – especially since the existing infrastructure can transport more natural gas. However, it is apparent that Nord Stream 1 and 2 are political projects even without technical analyses. It would be enough to look at the map in order to understand how Russian and German politics benefit from the construction of these connections. It is all about bypassing traditional transit countries, which are inconvenient for the Kremlin (especially Ukraine, which is, in fact, at war with Russia) and making Germany a central European gas hub.
At the moment, it should be highlighted that Germany closed the deal on Nord Stream 2 with the Russians despite the war in eastern Ukraine (started by Russia), the annexation of Crimea, the downing of MH17, the attempted poisoning of Skripal, or the incident near the Kerch Strait. Berlin turned a blind eye to these events, which the US ambassadors clearly pointed out in their letter to the German authorities.
A report published by the Sberbank CIB, an investment banking firm, also points to the political nature of the project. According to the document, key gas projects with which Gazprom wants to encircle Europe (Nord Stream 2 and Turkish Stream) will pay for themselves in several decades, which defies business logic. This means that Russia, while engaging in this project, is looking for a different kind of profit. These are, of course, political benefits, such as the possibility to exert economic influence on countries that are dependent on the supplies of natural gas from Germany.
Russia is already the largest supplier of natural gas to the European Union. The launch of the Nord Stream 2 gas pipeline will further increase its dominance in this field, allowing it to continue or create new local monopolies. This contradicts the objectives of EU energy policy, aiming to, among others, diversify gas supply sources.
Former German Chancellor and Chairman of the Board of Directors of Rosneft, Independent Director, Gerhard Schroeder (left), Russian Prime Minister Dmitry Medvedev (center) and Gazprom Chairman of the Board of Directors Viktor Zubkov (front right) attend an inauguration ceremony of Vladimir Putin as Russian President in the Kremlin. Moscow, Russia, May 7, 2018
Russia is known for using its energy resources for political purposes. In an investigation being conducted by the European Commission since 2012, Gazprom, the Russian state-owned company that extracts and sells natural gas (as well as implements projects such as Nord Stream 2), admitted that some of its practices in Central and Eastern Europe breached antitrust rules. The official charges brought by the European Commission against the Russian company included gaining unfounded influence on gas transport infrastructure (e.g., interconnectors, which allowed to control the transfer between the countries), dividing markets, and unfair pricing policy for individual member states.
The last of them should be discussed further. It was established that Gazprom unfairly offered its customers different prices, most likely on the basis of political motivations. This could be observed, for instance, in the case of Hungary and Poland. Budapest opposed EU sanctions against Russia, which were a response to the occupation of Crimea, purchases natural gas from the East on much better terms than Warsaw. However, this is contrary to basic economic factors such as the distance from deposits (Poland is located closer to them) or the purchase volume (Poland buys much more natural gas than Hungary).
The fact that Gazprom’s activities and projects are political is also evidenced by strange problems associated with its transport to Poland, among others. The last such event occurred in 2017 when natural gas flow via the Yamal pipeline was cut off. Interestingly, this happened just after the first delivery of American LNG to Poland and ahead of the visit of US President Donald Trump (a fierce opponent of Nord Stream 2). Simultaneously, the authorities in Warsaw were announcing further diversification of gas suppliers (which would reduce the volume of natural gas purchased from Russia even to zero). According to sources close to the Polish Oil Mining and Gas Extraction company (PGNiG), Polish energy suppliers interpreted these issues as a clear “political message.”
Earlier, problems with Russian gas supplies occurred in 2016, a week before the NATO summit in Warsaw and right after the first LNG shipments from Qatar and Norway to the Świnoujście LNG terminal. At that time, gas supplies fell by as much as 20%. The Government’s Plenipotentiary for Strategic Energy Infrastructure Piotr Naimski informed that “it is yet another time when, without prior notice and providing a reason, the Russian supplier failed to perform the contract. More of such incidents may affect the stability of the system and security of supply for customers.” In September 2014, gas supplies fell by 45% – Gazprom tried to reduce the reverse gas flow deliveries from the West to Ukraine.
Berlin can also gain politically from this project. Germany wants to build its own economic and political position on the basis of Russian resources. Germany, located in the center of Europe, is predestined to be the central distribution hub. Its status is privileged by a well-developed transmission infrastructure, especially efficient interconnectors. Consequently, Germany is able to use Russian natural gas to establish its own political and economic agenda because this resource is delivered to it without any intermediaries and in huge quantities. Additionally, thanks to a good relationship with Russia, Berlin can count on very attractive natural gas prices (lower than, for instance, Poland, which is located closer to Russia). Thus, Germany has its hand on the gas tap, impact on its prices, and can make money from it.
Above all, Central and Eastern Europe, and especially Ukraine, seem to be the victims of this political game. Tens of billions of cubic meters of Russian gas are still flowing across Ukrainian territory. In 2009, Europe learned how risky could be a bottleneck on this section. As a consequence of the Russia-Ukraine gas dispute, the transfer of natural gas to the Old Continent was halted. Because Ukraine is a transit country and has control over the flow of gas to other states, its safety is guaranteed, and Kyiv has an additional trump card in negotiations with the Kremlin. As a result, the European countries care about Ukraine’s fate. Now, however, given the situation in the Donbas and Crimea as well as the various possible developments of the Nord Stream 2 case, it is difficult to predict the future of Ukraine once this card is no longer available.
German Chancellor Angela Merkel (left) and Russian President Vladimir Putin during the International Libya Conference. Berlin, Germany, January 19, 2020. Opposition parties have called on German Chancellor Merkel to abandon the joint German-Russian pipeline project Nord Stream 2 in response to the alleged poisoning of Kreml critic Alexei Navalny.
For the time being, the situation concerning Nord Stream 2 is a stalemate. On the one hand, the project is subject to US sanctions – those already imposed and the other ones that are still possible. Despite their introduction, it cannot be fully ruled out that the project would not be completed. On the other hand, the United States indicated that it is ready to lift some of the restrictions upon further negotiations. However, it is unclear whether Germany would be willing to pay the price that the Americans set for the completion of Nord Stream 2. This could be, for instance, a guarantee that the deliveries through this pipeline would be limited. Accordingly, gas transit through Ukraine would be ensured. Although the situation concerning the Baltic gas pipeline is very dynamic, it is worth noting that since the Democrats took power in the US, the sanctions are being imposed on Germany (they are becoming an important tool for exerting influence on Berlin, which is not only the derivative of a policy towards the Kremlin) rather than Russia (so far, US sanctions on Nord Stream 2 were aimed at Moscow). Poland should closely monitor this subtle change because it may determine the correct evaluation of US-Germany relations.
At this point, the future of the Nord Stream 2 pipeline is difficult to predict. The Russians responsible for its construction often emphasize that only 150 kilometers (93 mi) are left for its completion. Consequently, the fate of the venture already seems to be determined. However, the history of this project has shown that nothing is certain.